7 New Rules from the CFPB - Are You Ready? (2 of 3)

In our last post, “7 New Rules from the CFPB – Are You Ready?”, we provided a summary and break-down of the most recent onslaught of changes and new rules that have been pushed out to the financial community. Bank leadership and compliance professionals are struggling to stay abreast of and implement these changes. That post covered the first three rules. This post will summarize rule four and five.  

The 7 new rules include: 

1. Ability-to-Pay Rule
2. Higher Cost Mortgage Rule
3. Rule Amending Escrow Requirements under Truth in Lending Act (Reg Z) 
4. Mortgage Servicing Rule
5. Appraisals for Higher Priced Mortgages Loans 
6. Reg B Appraisal Rule
7. Mortgage Loan Originator Qualification and Compensation Practices

TRUPOINT Partners thought it might be helpful to summarize some of these changes and help our clients better understand what the rule changes might mean to them. We’ve used the same format here. To review the prior post, Rules 1 through 3, click here.

Rule #4:  Mortgage Servicing Rule

• Dodd-Frank Requirement: Dodd-Frank imposed new requirements on servicers and gave the Bureau the authority to both implement the new requirements and also to adopt additional rules to protect consumers. The Bureau is exercising that authority to improve the information consumers receive from their servicers, enhance the protections available to consumers to address servicer errors, and to establish some baseline servicing requirements that will provide additional protections for consumers who have fallen behind on their mortgage payments.
• Exemptions:  The final rules include a number of exemptions and other adjustments for small servicers, defined as servicers that service 5,000 or fewer mortgage loans and service only mortgage loans that they or an affiliate originated or own. This definition covers substantially all of the community banks and credit unions that are involved in servicing mortgages. These exceptions and adjustments should help reduce burdens for these institutions that have strong consumer service safeguards already built into their business models.
• CFPB Quote: “For many borrowers, dealing with mortgage servicers has meant unwelcome surprises and constantly getting the runaround. In too many cases, it has led to unnecessary foreclosures,” said CFPB Director Richard Cordray. “Our rules ensure fair treatment for all borrowers and establish strong protections for those struggling to save their homes.”
• New Rule Overview:   
• The servicing rules are set forth in two notices. One to amend Regulation Z, which implements the Truth in Lending Act, and one to amend Regulation X, which implements the Real Estate Settlement Procedures Act. The rules cover nine major topics:
1. Periodic Billing Statements: Creditors, assignees, and servicers must provide a periodic statement for each billing cycle containing, among other things, information on payments currently due and previously made, fees imposed, transaction activity, application of past payments, contact information for the servicer and housing counselors, and, where applicable, information regarding delinquencies. 
2. Interest-rate adjustment notices for ARMs: Creditors, assignees, and servicers must provide a consumer whose mortgage has an adjustable rate with a notice between 210 and 240 days prior to the first payment due after the rate first adjusts.
3. Prompt payment crediting and payoff statements: Servicers must promptly credit periodic payments from borrowers as of the day of receipt. A periodic payment consists of principal, interest, and escrow (if applicable).
4. Force-placed insurance: Servicers are prohibited from charging a borrower for force-placed insurance coverage unless the servicer has a reasonable basis to believe the borrower has failed to maintain hazard insurance and has provided required notices. 
5. Error resolution and information requests: Servicers are required to meet certain procedural requirements for responding to written information requests or complaints of errors. 
6. General servicing policies, procedures, and requirements: Servicers are required to establish policies and procedures reasonably designed to achieve objectives specified in the rule. 
7. Early intervention with delinquent borrowers: Servicers must establish or make good faith efforts to establish live contact with borrowers by the 36th day of their delinquency and promptly inform such borrowers, where appropriate, that loss mitigation options may be available. 
8. Continuity of contact with delinquent borrowers: Servicers are required to maintain reasonable policies and procedures with respect to providing delinquent borrowers with access to personnel to assist them with loss mitigation options where applicable.
9. Loss Mitigation Procedures: Servicers are required to follow specified loss mitigation procedures for a mortgage loan secured by a borrower’s principal residence. 
• Effective Date of New Rule: 1/10/2014
• More from CFPB (links): 
• Press Release – Issued 1/17/2013
• Mortgage Servicing Rule Summary
• Fact Sheet
• The Rule (Full Document – 311 Pages)

Rule #5:  Appraisals for Higher-Priced Mortgage Loans (HPMLs)

• Dodd-Frank: Congress expanded consumer protections for HPMLs by adding new appraisal provisions to TILA. As required by congress, the rule was developed together with the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Federal Housing Finance Agency.
• Overview of the Rule:  
• The rule allows a creditor to extend an HPML only if the following conditions are met:
• The creditor obtains a written appraisal;
• The appraisal is performed by a certified or licensed appraiser; and
• The appraiser conducts a physical property visit of the interior of the property.
• The rule also requires creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.
• If the seller acquired the property for a lower price during the prior six months and the price difference exceeds certain thresholds, creditors will have to obtain a second appraisal at no cost to the consumer. This requirement for higher-priced home-purchase mortgage loans is intended to address fraudulent property flipping by seeking to ensure that the value of the property legitimately increased.
• The rule exempts several types of loans, such as qualified mortgages, temporary bridge loans and construction loans, loans for new manufactured homes, and loans for mobile homes, trailers and boats that are dwellings. The rule also has exemptions from the second appraisal requirement to facilitate loans in rural areas and other transactions.
• Effective Date of New Rule: 1/18/2014
• More from Interagencies (Federal Reserve Board, CFPB, FDIC, FHFA, NCUA, OCC) & CFPB (Links): 
• Interagencies Press Release – Issued 1/18/2013
• CFPB Press Release – Issued 1/18/2013
• Higher Priced Mortgage Loans Rule Summary
• The Rule (Full Document – 333 Pages)